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Dan's avatar

Good article on the fundamentals, however "plan to retire at age 70-75" - how is this possible when every day there is a new report about how people over 50 are having a harder and harder time finding work? I guess the real insight here is that you need to find a way to make yourself employable (or self-employed) until age 75, which seems near impossible for the vast majority.

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Jimmy Becker's avatar

A second comment... you were too kind to the AUM ("assets under management") fee model that's typically a 1% fee. Besides the enormous lifetime cost (as you showed in your variations of exponential charts), there are at least two other problems with the 1% AUM fee besides the obvious one that they can't beat a passive index.

First, it essentially captures close to 100% of the after-tax returns in the fixed income portion of the portfolio -- all the gains go to the advisor but any losses accrue to the client. Nice work if you can get it!

Second, it's rife with conflicts of interest. Consider the simple case of a $1 million client who asks his advisor if he should pay off his $300K mortgage with some of his savings. If he does so, the advisor's fee is going to shrink by 30%. That's tricky to resolve when the advisor tells you you're better off keeping the mortgage.

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